Apple Inc. & China’s Role In The Next Great Investment Boom

Apple Inc. has announced it will be issuing a $10.60 dividend to shareholders, paid quarterly. Theoretical implications are that Apple is unable to find projects that would provide a return justifying the corporation’s investment, thus cash is better off in the hands of investors.

Apple’s management has, moreover, announced a repurchase of $10 billion of shares, potentially a positive signal to the market indicating management confidence. But it’s one to be treated with caution as completion is difficult to measure, and even if Apple do complete the buyback, by that time the outstanding float may have substantially increased.

The move will act as a signal to the market. One read of the signal is simple: Apple has run out of ideas! As a result, we might expect to see a tapering off of the stock price of Apple’s shares, followed by a period of sideways consolidation as an equilibrium/fair-price range is established (see graph 1)

What does Apple Inc’s position say about China’s role in global strategic business relationships and the changing face of market drivers?

Apple’s latest product launches have relied on Chinese manufacturing advantages. China is off her marks when it comes to global strategic business relationships and is committed to producing her own high quality global brands as well. Big financials have been gathering like moss in order to add Chinese firms to their investment portfolios. Qualified Foreign Institutional Investors have jumped in number from 51 in 2006 to 88 in 2009 and more than 113 in 2012, whilst foreign portfolio capitalization from 2002 at USD$849 million has managed a recovery to USD$31.36 billion in 2011 after a 2007 peak at USD$42.86 billion prior to the global financial crisis. Meanwhile FDI figures dwarf those of other developing economies, resuming an upward trajectory (see graph 2). Note India’s failure to maintain an upward trend from 2008, CHINA surpassing USD $1.8 trillion

Foreign firms with visions of low-cost labour and low-capital inputs for quality and efficiency of output have been willing to explore markets outside China, for example, Vietnam, India and Brazil as alternative manufacturing zones. However, these countries continue to be lacking in ways which together secure China’s long-term future: the efficiency wrought from synergistic efforts by mobilizing groups of inter-reliant firms; China’s FDI ‘head start’ and its associations and the labour force willingness and motivation to work long and hard on-demand.

On the latter point, there are still many Chinese workers willing to trade long hours and hard work for the utility and happiness of more money. On the other hand, there has been unrest amongst Chinese workers evident from organised protests, including those surrounding the Foxconn suicides. However, in order for the Marxist-Leninist Chinese state to maintain stability, the government might offer solutions, but won’t necessarily address the causes. Not at this stage in China’s economic growth. To repeat the unwitting adage: ‘China isn’t ready yet.’

Just suppose the Western world is nearing the start of the biggest bull market any of us will have seen in our lifetimes. But technological innovation will not be the primary driver of this continuation of the long-term (100+ years) uptrend. Rather, the driving force of the great 21st century bull market will come from who manufactures the technology and where. Global trade flow will be dominated by these variables.

Thus, through its efforts and successes, China will share in the opportunities of market oriented economies through cooperative and individual efforts. China is already at the forefront of this new wave of global manufacturing, only we’re just at the beginning of the first phase of a magnificent series of bull market runs which could last thirty years or more. China is going to be a central cog in the upcoming boom. Medium-to-long term, the other BRICS countries still have a lot of catching up to do. In addition to the smaller South East Asian nations, competition could come from Indonesia, which has a huge potential for absorbing technology and an appetite for scalability in manufacturing order fills.

Sam Beatson is a Ph.D. Candidate at the School of Contemporary Chinese Studies at the University of Nottingham.

Opinions expressed in the CPI blog do not represent the views of the China Policy Institute or the School of Contemporary Chinese Studies at the University of Nottingham. They are the personal views of the bloggers/authors.

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